Companies don’t always produce the income they need to cover the bills. While this is just a normal part of business, it can be problematic if it occurs over a prolonged period. The business owner may soon realize that they’re going to have to do something to take care of the financial situation. Sometimes, this means filing for bankruptcy.
There are two primary types of bankruptcy that businesses will file. These are Chapter 7 and Chapter 11. In a Chapter 7, the company closes and assets are liquidated to pay off creditors. In a Chapter 11, the company remains open during a reorganization process.
Even before your company files for bankruptcy protection, there will probably be some concern by employees that something is amiss. Employers typically can’t hide the fact that the company is in trouble financially so it’s best to think about how you’re going to tell the employees about the bankruptcy.
One thing that you have to consider is how you’ll answer questions about pay. You shouldn’t make any promises about their pay that you can’t keep. For example, if you’re filing a Chapter 7 bankruptcy for your business, your employees become creditors for their wages. They’re assigned as priority claims for unsecured creditors. This category is paid only after the secured creditors are taken care of.
You have to ensure that you’re doing what’s in the best interests of the business. This means that you should evaluate bankruptcy, as well as alternative options. Working with someone who’s familiar with these matters can help you to ensure you’re making the choices that are optimal for the current situation. Be sure you don’t wait too long to take action. It’s always best to handle these matters as soon as you realize there’s a problem.